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Walmart Scandal in Mexico Points to U.S. Hypocrisy

The Walmart bribery scandal is a fresh example of the U.S. double standard toward its southern neighbor. John M. Ackerman on the latest cross-border outrage.

The real scandal is that the Walmart Mexico corruption exposé does not come as a surprise. Constant controversy has marked Walmart’s rapid expansion in Mexico over the last 15 years.

One of every five Walmart stores is now south of the border, and the company reported total sales of US$29 billion in the country during 2011. Last year alone, it opened 365 new stores in Mexico.

But there are constant allegations that most profits are expatriated or hidden through sophisticated accounting schemes in order to avoid paying taxes to the Mexican government. This has been confirmed by studies conducted by both the Mexican Chamber of Deputies and the company’s own internal investigation. Walmart also pays miserable wages, employs an army of unpaid “baggers” at its checkout lines, and has been accused of widespread violation of labor laws.

The company establishes few backward linkages with Mexican manufacturers, since the vast majority of the products it sells originate in the United States. Its recent growth also puts at risk the Mexican tradition of street markets, which date back to the times of the Aztecs and Mayans. The company has even been accused of interfering with archeological sites, for instance in Teotihuacan in central Mexico.

The fact that Walmart has also paid more than $24 million in bribes to Mexican officials, according to The New York Times’s account, is therefore more of the same. Walmart has claimed that it is “deeply concerned” by the allegations and is “working aggressively to determine what happened.” But there is no reason to think that this is an isolated incident. Sunday’s exposé demonstrates that Walmart has not taken any measures to stop the wrongdoing and that, seven years later, absolutely no one has been punished for the criminal acts. The corruption was probably even more widespread than we know, and similar practices most likely continue today as Walmart still expands at a death-defying pace in Mexico.

Both the U.S. and Mexican governments should immediately initiate a full-scale and wide-ranging investigation of the practices and impact of Walmart in Mexico. In addition to strict enforcement of the Foreign Corrupt Practices Act and investigations by Mexican state and local comptroller and attorney general’s offices, both countries should also push to activate the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials, as watchdog groups have requested.

Once again, south of the Rio Grande, the same standards of ethics simply do not apply.

One of the most disturbing aspects of the scandal is that the illegal practices most likely would not have received the same treatment if committed on U.S. soil. “It’s a Mexican issue; it’s better to let it be a Mexican response,” said one of the informants, summarizing the thinking of Walmart executives. The implication is clear: there is no need to apply high standards of honesty and accountability when dealing with “backward” or “underdeveloped” nations. It is better to profit from lawlessness than to uphold the rule of law.

This type of double standard is unfortunately typical of dealings by U.S. corporations with their southern neighbor. For instance, the Justice Department recently fined an Oklahoma-based aeronautics company, BizJet, for bribing officials in Mexico’s federal Secretariat for Public Security in exchange for contracts worth at least US$24 million. At the height of the U.S. financial crisis, Wachovia bank was accused by authorities of laundering more than $378 billion dollars of drug proceeds through currency-exchange houses in Mexico. (Wachovia settled the charges, paying $110 million in forfeiture and another $50 million in fines; the case was never tried in court.) It was more important to avoid bankruptcy than to comply with the law and help stop the flow of money to organized death squads south of the border.

The prostitution scandal involving U.S. Secret Service agents in Cartagena, Colombia, drives home a similar point. Sen. Joseph Lieberman has played down the incident, stating that the agents involved “were not acting like Secret Service agents. They were acting like a bunch of college students away on a spring student weekend.” Once again, south of the Rio Grande, the same standards of ethics simply do not apply.

The attitude of many U.S. observers toward the upcoming July 1 presidential elections in Mexico is tainted by a similar sort of hypocrisy. Instead of being cause for alarm, the possible return of the old-guard authoritarian Party of the Institutional Revolution, with presidential candidate Enrique Peña Nieto, is seen as a necessary and acceptable evil. Analysts are willing to ignore the party’s long history of corruption and economic mismanagement, as well as the obvious weaknesses of the candidate in terms of practical experience and intellectual capacity, in the interest of maintaining continuity in economic policies and the U.S.-led “drug war.”

The principle lesson of the Walmart scandal is that it is time for the U.S. to change its attitude toward its southern neighbor. Instead of actively underdeveloping Mexico by tolerating illegality and mediocrity, the U.S. (its people, corporations, and government) needs to start to respect Mexico and Mexicans as equal partners in the construction of a new, more democratic, prosperous, and peaceful North America.